Money And Credit Questions | Class 10 | Social Science | Unit 4 | Chapter 3 2024

Last updated on July 14th, 2024 at 05:01 pm

Money And Credit Important Questions 

Below are some of the very important NCERT Class 10 Social Science Unit 4 Chapter 3  Money And Credit Important Questions. These Class 10 Manufacturing Industries Important Questions have been prepared by expert teachers and subject experts based on the latest syllabus and pattern of term 2. Questions with Answers to help students understand the concept.

These Questions for Class 10 Social Science Money And Credit Important Questions  with answers are very important for the latest CBSE term 2 pattern. These class 10 notes,  Q and A are very important for students who want to score high in CBSE Board.

We have put together these NCERT  Questions of Class 10 Social Science unit 4 chapter 3 Money And Credit Important Questions for practice on a regular basis to score high in exams. Refer to these Questions with Answers here along with a detailed explanation.

Short Answer (SA) Type Questions

1. How is money used as a medium of exchange? Explain with examples.

2. How do demand deposits have the essential features of money? Explain.

3. Examine any three situations in which credit helps in the development of agriculturists.

4. Examine any three situations in which credit pushes the borrower into a debt-trap.

5. Explain the three important terms of credit.

6. Why do lenders ask for collateral while lending? Explain. 

7. Explain the role of credit for economic development.   

8. “Credit can play negative roles. Justify the statement with arguments.

9. Why is cheap and affordable credit important for the country’s development ? Explain any three reasons.  

10. Why are service conditions of formal sector loans better than informal sector loans ? Explain. 

11. Explain any three for the banks and cooperative societies to increase lending facilities in rural areas.

12. The credit activities of the informal sector should be discouraged.” Support the statement with arguments. 

13. Compare and contrast the role of formal and informal source of credit.

14. Explain the features of Self Help Groups.

Short Answer Type Question Answers

Ans. 1

Money is used as a medium of exchange in the following ways:

• In day-to-day transactions, goods are bought and sold with the use of money.
• The transactions are made in money as a person holding money can easily exchange it for any commodity or services.
• Use of money has made it easier to exchange services such as the service of a doctor, teacher etc.

Ans. 2

Demand deposits have the essential features of money in the following ways:

• Demand deposits can be withdrawn from the bank whenever it is required.
• Demand deposits are widely accepted as a means of payment, along with the currency, thus they are considered as money.
• Demand deposits are also accepted widely as means of payment by way of a cheque instead of cash.

Ans. 3

Three situations in which credit helps in the development   of agriculturists are 

(i) Farmers can buy farm machinery and equipment along with fertilizers for better crop production by taking cheap loans. 

(ii) Farmers can buy other agricultural inputs like hybrid  seeds, raw materials or undertake irrigational  activities in their farms to get better crop yields.

(iii) Farmers can buy farm animals and other livestock to raise their secondary income with the help of credit facilities.     

Ans. 4

Three situations in which credit pushes the borrower into a debt-trap are

(i) When a borrower sells the agricultural produce to repay a loan but it may not be enough. Then more credit is taken to repay the entire amount which pushes the borrower into debt-trap.

(ii) When borrowers depend on informal sources of credit who charge a high rate of interest. This  increases the rel)aylnent     and new loans have to be taken to repay the earlier ones.

iii) In high risk situations, for example, farmers take credit before sowing crops. If harvest fails then fresh loans are taken to repay the existing loans leading to debt-trap.

Ans. 5

Terms of credit is a set of conditions under which a loan is given. Three important terms of credit are:

(i) Collateral A borrower has to offer a collateral to the  lender. It is a security to use as a guarantee till the  loan is paid such as land title, bank deposits, livestock, house, factory etc.

(ii) Rate of Interest It is the proportion of the amount at  which the lender lends money to the borrower. The rate at which loan is given is decided by the RBI.

(iii) Time period It is the duration of the loan till which the amount will be repaid along with interest.

Ans. 6

The lenders ask for collateral before lending because it is an asset that the borrower owns and uses this as a guarantee to the lender, until the loan is repaid. 

A collateral is an asset such as land, building, livestock, vehicle or deposits with banks that the borrower owns and uses this as a guarantee to the lender until the loan is repaid.

Collateral with the lender acts as a proof that the borrower will return the money. By keeping a collateral with the lender the borrower is bound to be regular in paying the interest because the borrower does not want to lose the collateral. In case of default i.e. borrower is unable to pay the loan, the lender has the right to sell the collateral or use it. 

Ans. 7

The role of credit for economic development is

• A country’s growth and economic development is greatly dependent on a cheap and affordable credit system. Different kinds of economic activities need  credit like to set up business for investment purposes, and also buying new houses, cars and so on.
• Most manufacturing units need a huge amount of  money to buy raw materials for their production process. Thus, credit here helps to make such manufacturing work easy. 
• Cheap, affordable nncl fnst credit system helps farmers to buy new and advanced technology for agricultural practices, e.g. tractors, threshers, fertilizers, new and advanced seeds (HYVs) and so on.

Ans. 8

Credit can play negative role in the following ways 

• In situations where credit is taken to repay the earlier loans then it will increase the burden of repayment.
• In high risk situations when the future is uncertain, there credit plays a negative role. For example, farmers taking credit before sowing but their harvest may not be  good and they may not be able to repay their loans.
• Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger then their income. In that case, credit plays a negative role.

Ans. 9

Cheap and affordable credit is important for the country’s development because

(i) More lending would lead to higher income and encourage people to invest in agriculture, engage in  business and set up small scale industries.

(ii) Cheap credit will allow weaker sections of society to   get rid of the exploitation at the hands of money  lenders and come out of debt trap. 

(iii) Affordable credit would lead to sustainable economic activity that would allow borrowers to invest in better technology to make their business more competitive.

Ans. 10

Service conditions provided by formal sector loans are better than informal sector loans because 

• Formal sources of credit provide cheap and affordable  credit without any undue exploitation.
• People in rural areas take credit from moneylenders and  traders (informal sector) who charge a very high rate of interest.
• Informal sectors exploit the borrowers leading to debt traps.
• Formal sector is mainly supervised by the Reserve Bank of India, Sos every clause is in writing and clear to  comprehend. Whereas, no external or organization  supervises the informal sector. So, there is no such written clause.

Ans. 11

Banks and cooperatives life needed to increase their lending facilities in rural areas because

(i) People in rural areas take credit from moneylenders and traders who charge a very high rate of interest. These people must be aware about the role of banks and cooperatives so that they can be provided by  cheap credit facilities.

(ii) Rural people are exploited by using unfair means  thus, leading them to debt traps. To reduce the dependence of the informal sector in rural areas, there is need for setting up more banks.  

(iii) Formal sources of credit provide cheap and affordable credit in rural areas without any undue exploitation. These formal sources will serve as a building block for rural households. This will help the people to start up their small business or trade in certain goods.

Ans. 12

The credit activities of the informal sector should be discouraged because

• It is seen that around 85% of the loans taken by the poor  households in the urban areas are from informal sources. 

There is no monitoring system that supervises the credit activities of the lenders in the informal sector. 

• High cost of borrowing leads to a major share of earnings going into payment of interest on the loan so a formal source of credit is needed. 

• Sometimes the higher interest rate leads to the requirement to pay more than the earnings, thus falling into a debt trap. To eliminate this, formal sources are  needed. 

• Borrowers falling into debt-traps discourage more    people from borrowing, which ultimately reduces development of the country. 

Ans. 13

Ans. 14

The features of the Self Help Groups (SHGs) are

• SHGs typically consist of 15-20 members and each member is required to save and pool (collect) in their resources.
• The SHGs are constituted to provide loans to its members at a reasonable rate.  
• After a year or two and with regular savings, the group is  eligible to take loans from banks. 
• SHGs seek loans from banks for its members collectively  and meet the needs of buying assets, machinery, raw  materials, construction or repair. 
• SHGs also meet regularly to discuss and act on various  social issues like dowry, domestic violence, child marriage, health, nutrition, etc.

  Long Answer (LA) Type Questions 

1. “Banks play an important role in the economic  development of the country.” Support the statement with examples.  

2. Which government body supervises the  functioning of formal sources of loans in India? Explain its functioning.
Or
Describe the functions of the Reserve Bank of India.  
Or
Describe the significance of the Reserve Bank of India. 

3. How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.

4. Mohan works at a construction site in a sub-urban  area while Sudhir is a marketing manager in a company. Both want credit to buy a home. Create a  list of arguments explaining who has more possibility of getting a home loan from the formal sector.

5. Name two formal and two informal sources of credit in India. State advantages of formal and informal sources of credit.

Long Answer Type Question Answers

Ans. 1

Bank plays an important role in the economic development of the country in the following ways 

(i) Bank Accepts the Deposits Bank accepts the deposits  and also pay an amount as interest on the deposits. In  this way, people’s money is safe with the banks and it earns an amount as interest. 

People also have the provision to withdraw the money as  and when they require. Since the deposits in the bank account can be withdrawn on demand, these deposits are called demand deposits.

(ii) Bank Provides Loans Bank keep only a small portion of their deposits as cash with themselves. Banks use the major portion of the deposits to give loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirement of the people.

(iii) Provides Credit A large number of transactions in our day-to-day activities involve credits in one form or the other. Many industries are provided credit by the banks which further helps in the economic development of the country which generates more employment and raises income for the people.

Ans. 2

The Reserve Bank of India (RBI) supervises the functioning of formal sources of loans in India.  Functions or significance of Reserve Bank of India are

• The RBI monitors that the banks actually maintain  the cash balance and do not give all the deposits as loans. 
• The RBI ensures that the banks give loans not just to profit-making businesses and rich traders, but also to   small cultivators, small scale industries, small borrowers, etc.  
• Periodically, banks have to submit information to the RBI on how much they are lending, to whom, etc.
• The rate of interest charged on loans given by the banks is decided by the Reserve bank.
• In this way, the RBI keeps a check on all the activities of banks and checks the flow of credit also.

Ans. 3

The measures to make formal sector loan beneficial for poor farmers and workers are 

(i) The formal sector like banks and cooperatives should lend more to poor people and workers, particularly in rural areas.

(ii) The formal sector should provide cheap and  affordable credit to the poor people so that repayment is easy.  

(iii) Formal sector should work out other ways of arranging collateral from the poor people.

(iv) By providing linkage between Self Help Groups and  banks, the formal sector of credit can be increased.

(v) There should be more cooperatives and   banks in rural areas and people should be made aware of their presence. 

Ans. 4

Sudhir has more possibility of getting a home loan from the  formal sector due to the following arguments

• Formal sector consists of banks and cooperatives. Banks require proper documentation and collateral. In the above  case, Sudhir will be able to provide the necessary documents like salary slip, employment record and other documents that are needed by the banks.

• Banks also require collateral security which can be provided by Sudhir since his economic condition is  better. Even if he is not able to provide collateral security then the bank can retain the ownership papers of the house as collateral security. 

• Since Sudhir has a regular source of income, he is in a better position to repay the loan amount in future. But Mohan will not be able to provide proper documents or collateral security so he has to depend on the informal sector for credit needs.

Ans. 6

• Two formal sources of credit are banks and cooperatives and informal sources of credit are moneylenders and traders. The advantages of formal sources of credit are      It provides loans at a fixed rate and terms.
• It gives loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries and small borrowers etc.
• Cost of borrowing is less and hence promote borrowing and more economic groWth. 
• There is no exploitation as in the case with the informal  sectors.
• The advantages of informal sources of credit are 
• There is no external control over the lending practices. 
• It is suitable for poor households as they don’t have to follow a certain kind of procedure which is required in formal sources of credit.

Case-Study Based Questions 

1. Read the following case and answer the questions that follow.

Source A Informal Credit

Compared to the formal lenders most of the informal lenders charge much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. Higher cost of borrowing means a larger part of the earnings of the borrower is used to repay the loan.

(i) What extent do you agree that credit from the informal sector is not good for borrowers?

Source B Currency

Unlike the things that were used as money earlier, modern currency is not made of precious metals such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use. The modern currency is without any use of its own.

like grain or cattle?       

(ii) Why modern currency is not like the earlier forms of currency 

Source C Loan Activities of Bank

There is an interesting mechanism at work here.  Banks keep only a small proportion of their  deposits as cash with themselves. For example,  banks in India these days hold about 15 percent  of their deposits as cash.

iii) In the above lines, which function of the bank is highlighted?  

2. Read the case given below and answer the questions that follows. 

In India the Reserve Bank of India issues currency notes on behalf of the Central Government. As per Indian Law, no other individual or organization is allowed to issue currency. 

Moreover, the law legalizes the use of rupee as a medium of payment that cannot be refused in setting fransactions in India. 

No individual in India can legally refuse a payment made in rupees. Hence, the rupee is accepted as a medium of exchange.

The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. For instance, workers who receive their salaries at the  end of each month have extra cash at the beginning of the month. 

What do people do with this extra cash? They deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits.

In this way people’s money is safe with the banks and it earns an amount as interest. People also have the provision to withdraw the money as and when they require, Since the deposits in tlic bank  accounts can be withdrawn on demand, these deposits are called demand deposits,

(i) Why is there a need to legalize rupcc as a mediunl of exchange? What monetary system does India follows?

(ii) Mention two uses of opening a bank account by the people. 

(iii) How demand deposits are useful for the banks as well as for the people? 

Case Study Based Answers

Ans. 1

(i)

Yes, credit from the informal sector is not good for the borrowers as the rate of interest charged by the informal lenders is so high that a larger part of income of the borrowers goes to interest payment which results in debt-trap or more poverty.

(ii)

Modern forms of currency are unlike earlier forms of currency such as Grain and cattle even when they were not used as currency had value of its own. On the other hand, modern currency, if not authorized by the Reserve Bank of India, becomes an ordinary piece of paper as it has no value of its own.

(iii)

The function of giving loans is highlighted here. Banks after keeping 15% of their deposits as cash, extend the rest of the deposits to people as loans. 

Ans. 2

(i) There is a need to legalize rupee as a medium of exchange so that all payments can be made and no one can refuse rupee in settling transactions. India has adopted a representative paper currency or we can say that managed currency standard.

(ii) Two uses of opening a bank account are 

1. To deposit surplus cash into the bank account.
2. To earn interest given by the banks on deposits. 

(iii) Demand deposits are useful for the banks as well as for the people in the following ways

• For the banks, demand deposits provide an opportunity to extend them as loans.
• For the people, demand deposits are like near  money that can be easily withdrawn from  banks. 

Final Words

From the above article, you have practiced Class 10 Social Science unit 4 chapter 3 Money And Credit Important Questions. We hope that the above-mentioned notes, Q & A for term 2 will surely help you in your exam. 

If you have any doubts or queries regarding Class 12 Social Science unit 4 chapter 3 Money And Credit Important Questions feel free to reach us and we will get back to you as early as possible.